Row over Labour's 'secret tax bombshell'
A major political row has broken out after the Tories seized on Treasury documents to claim that Labour was planning a “bombshell” rise in income tax of 3p in the pound if it won the next general election.
The Treasury figures — marked “confidential” — disclosed a big rise in projected income tax receipts between now and 2011-12, as well as in subsequent years. They led the Tories to accuse ministers of “factoring in” an immediate rise in income tax if Labour was returned to power.
Further rises could lead to the amount taken through the tax increasing by almost a third by 2013-14, the Tories said. They claimed the rise in receipts could not be accounted for by people returning to work and the introduction of the new 50p top-rate tax on earnings of more than £150,000 a year.
George Osborne, the shadow chancellor, said: “Labour’s secret spending plans, which Gordon Brown never wanted to make public, appear to reveal an income tax bombshell”.
The figures suggested that the average family’s tax bill would rise by £2,770 by 2013, he added. However, Liam Byrne, the Treasury Chief Secretary, accused Mr Osborne of making “false” claims and trying to “mislead the British people”. The increase in income tax receipts was accounted for, he said, by “the economy returning to growth, no more, no less”.
The disclosures followed a leak to the Tories last week that showed that the Treasury was planning to cut the budgets of Whitehall departments by 9.28 per cent over four years starting in April 2010 — a reduction of £36 billion a year.
The main parties have become embroiled in a pre-election spending battle, with Mr Brown finally admitting last week, in a speech to the TUC conference in Liverpool, that Labour would have to make cuts if re-elected, although he pledged to protect front-line services.
The latest row centred on a series of Treasury tables showing the anticipated income tax receipts in the years up to 2013-14.
The total falls to £140.5 billion this year, which most experts expect will include the worst of the recession, before rising slightly to £144.7 billion in 2010-11, which covers the period when the next election is expected to be held.
In 2011-12, however, the projected income tax “take” leaps to £161.6 billion. The Tories said that rise could not be accounted for by the planned 50p tax rate for those on incomes of more than £150,000, which would raise just under £2 billion in
2011-12, or by people returning to work as the economy started to recover.
They said the £14.8 billion “unexplained” increase in receipts would be the equivalent of putting 3p on the standard rate of income tax. The tables showed that receipts would rise still further in subsequent years, ending up at £191.8 billion in 2013-14 — a rise of 32.55 per cent from 2010-11.
Mr Osborne said: “Income tax receipts are set to rise by a third. Are ministers asking us to believe that this is due only to recovery from recession and the 50p rate?
“Hard-working families are having to pay a heavy price for Labour’s economic incompetence and the tragedy is that so much of the money will be spent on the bills of social failure like the cost of unemployment and paying the interest on debt.”
If ministers were planning to raise income tax if they won the next election, it might help explain why their current strategy was to admit to spending cutbacks in the future but claim that cuts under the Tories would be more severe – relying on the extra tax revenue to plug the gap.
The documents also predicted that income tax receipts would rise faster than growth in the economy.
The tables showed that “TME” (Total Managed Expenditure, which encompassed all spending by central government) would rise from £701.7 billion next year to £758.3 billion in
2013-14. Over the same period, payments on debt interest were projected to rise from £42.9 billion to £63.7 billion — or more than £2,000 from each taxpayer.
Mr Byrne said: “These government tax projections simply set out what is raised by our existing published measures as the economy returns to growth. No more, no less. This creates serious questions over George Osborne’s judgment. The shadow chancellor needs to answer why he is trying to mislead the British people.’’
At the time of the Budget, in April, the Treasury published official growth forecasts for the economy that were widely branded as “over optimistic”.
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